Socially Responsible Investing: Why DIY?

SRI funds make feel-good investing sound easy, but for the most impact you’ll want to do it yourself.

Back in 1971, when Methodist do-gooders Luther Tyson and Jack Corbett set out to change the stakes of the investment game with $101,000 and a novel concept—investing with a conscience—socially responsible investment (SRI) funds probably sounded like a hippy’s peace-pipe dream. Decades later the company they started, Pax World Funds, has become the cornerstone of a booming sustainable investment industry. But more and more, it’s looking like the pipe-dream part was true.

Investing in ecologically-conscious, fair-minded companies turned out to be a popular idea—unfortunately, it’s easier said than done. Still, Tyson and Corbett tapped a previously-unseen market and when others saw the dollar signs, they wanted in. By 1995, the U.S. had 55 SRI funds with $12 billion in assets, says the Forum for Sustainable and Responsible Investment, and by 2012 those numbers had grown to 333 and $640.5 billion, respectively.

Much of this growth happened in spite of evidence that many funds aren’t living up to their claims of social responsibility. In 2003, “23 SRI funds had shares in Halliburton,” wrote Terry Fiedler in a 2005 report for Utne. “The fast-food juggernaut McDonald's, which has been linked to America's obesity epidemic, was included in 41 funds. And ExxonMobil, a perennial environmental threat, was represented in the portfolios of some 40 SRI funds.” At the time, the vice president of social research for Pax World Funds, Anita Green, pointed out that SRI funds use shareholder power to advocate for positive change from within the company. While this does lessen the blow, Green’s claim contained more than a little deceit.

In 2006, Pax World Funds stopped calling its investments “socially responsible”—since SRIs have strict rules on what they won’t invest in (weapons, petroleum)—and changed its investment philosophy to “sustainable investing.” The new terminology allowed Pax to invest in companies regardless of how they make their money, as long as they’re sustainable or socially conscious relative to other businesses in their industry.

Given the hazy new definition, we probably shouldn’t have been surprised when the company was caught investing in businesses that profited from Pentagon contracts and petroleum in 2008. Pax claimed the investments were an oversight (how could they have possibly known that Anadarko Petroleum wasn’t eco-friendly?) and paid a $500,000 fine. But the SRI industry’s reputation was tarnished. The real problem, wrote Ron Lieber for the New York Times, “is the sheer impossibility of finding any companies to invest in that are truly pristine.”

Still, investing in entities less ghastly than Halliburton or Anadarko remains possible. It takes a little legwork, but here are some tips and resources:

Invest in municipal bonds
These bonds are issued by city, county, and state governments, as well as nonprofits like universities, hospitals, and energy firms. A team of authors at GreenMoney Journal writes, “Municipal bonds are, by definition, investments in the public good and ideally achieve some measure of positive social outcome.” While muni bonds aren’t completely immune to default, they are relatively low risk. And many states offer tax-free municipal bonds for in-state investors.

Invest in your communitySlow Money members who have created local investment clubs are seeing returns of roughly 3 percent, and the benefits to the community—strong local relationships, a robust local economy, and healthy food—are invaluable.

Think local and cooperativeKeep investments in a member-owned or nonprofit brokerage firm. The Times’ Lieber suggests Vanguard, USAA, or TIAA-CREF.Bank and save through your local credit union.

Keep tabs on your SRI fund In a 2004 report, entrepreneur-turned-author Paul Hawken and the Natural Capital Institute (now WiserEarth) knocked SRIs for investing in many of the same organizations as conventional funds. But Hawken didn’t intend to take the industry down—he wanted people to demand clearer criteria and more transparency. Still, trying to change the industry might be more work than investing outside of it.

GreenMoney Journal
A quarterly newsletter focused on making business, investing, and the economy more sustainable. Articles are also available online. The writing can be a bit technical, but is typically thoughtful and informative.

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activistsdiary

5/19/2014 1:37:20 PM

An informative article - thank you! I recently re-allocated funds to SRIs (those I could, anyway...hmmm...why don't workplaces let you choose SRIs for your 401K? And, I've always worked at non-profits - never had that opportunity).
I did work with a financial planner, but I researched funds as much as she did. It was helpful for her to tell me whether they were well-performing funds, however, I was surprised when I first started researching, to see some companies that I would never consider socially responsible that are included. Ultimately, I used Green America's guide, and basically Googled to find funds that are investing in sustainable energies, not carbon, etc.
I started wondering if people - especially those like me - activists for myriad social justice issues - are aware of SRIs and are investing in them.
I am considering hosting a workshop for activists and any other individual investors on this subject. I have not seen a lot of articles/information on SRIs, and I think people are hungry for it. So, thanks again - I will hold onto this as a valuable resource.